Learnings from India: Demonetisation and digitalisation

By Sven Bossu, Head of Sibos

When planning for Sibos, the team travels extensively to different markets across the world to better understand their distinct challenges and developments. This helps to ensure that Sibos meets all of the needs of its diverse, and growing, community.

Earlier this year, we were in India as the country adapted to the much-publicised demonetisation programme. Though disruptive in the short term, the positive long-term implications include curtailing the shadow economy and driving e-commerce.

I took the opportunity to speak with some of the country’s leading bankers about the demonetisation programme, its effects, and a changing financial landscape.

“The aim of demonetisation,” explained Mr VG Kannan, Chief Executive, Indian Banks’ Association (IBA), “is primarily to curb corruption, counterfeiting, the use of high denomination notes for terrorist activities and especially the accumulation of black money generated by income that has not come to the tax net.”

“As an after-effect of this drive, demonetisation could be viewed as a means to move from a cash-based transaction system to less of a cash transaction society.” 

So, I asked Mr Kannan, with a large part of India now banked and mobile banking rising, will the concept of physical cash eventually disappear, replaced by digital payments and bitcoins?

His reply: “While demonetisation has indeed provided a great push to the entire gamut of digital banking, including mobile banking, it would be difficult to say that the same momentum is here to stay. The absolute increase in mobile banking transactions was 7 million from October 2016 to November 2016, and then reduced to 4 million from November to December 2016.”

“People are aware of alternative means of payment other than cash and with perseverance financial inclusion efforts could be further improved. Cash will continue to act as a means of transaction in Indian society mainly because of education levels, and the diverse nature of the country. Countries that have an excellent cashless record, such as Sweden, the Netherlands, Belgium, France, Singapore, the US and Canada, have been shrinking their smaller pockets of cash through years of investment in infrastructure, technology, financial inclusion and education. We will probably see less cash in India in the future by increasing awareness and an unstinted focus on digital transactions.”

Working with new entrants

In my mind, this means that financial institutions need to get further into FinTech. They’ll need to ensure that they’re making the best use of technology, developing user-friendly apps and enhancing the customer experience.

Mr Mrutyunjay Mahapatra, Deputy Managing Director and CIO, State Bank of India (SBI), picked up on this point:

“There’s merit in evaluating potential opportunities to collaborate. This has the benefit of bringing agility and ‘new age thinking’ to traditional banking, and marrying this with the scale, trust and risk management offered by banks.”

“We should seek to build a structured engagement model with FinTechs. This involves deeper evaluation of the institution's value proposition and approach to customer interaction, for example robo-advisers or virtual personal assistants.”

“State Bank is currently collaborating with cutting-edge partners to build technologies - like Blockchain, Artificial Intelligence and machine learning platforms - that will be part of our Digital 2.0 FinTech Foundation.”

Mr Kannan also talked about increased cooperation in the Indian financial ecosystem: “Banks and FinTech companies are already collaborating at several points in the financial system.”

“While FinTech companies are helping banks to serve niche segments and helping with last mile connectivity, the banks, due to their position as major financial intermediaries, enjoy customer loyalty. They provide a ready-made market for the innovations made by the FinTech companies.” 

A clear and present danger

As services become ‘digital first’, what about the spectre of cybercrime? A fact that sticks in my mind is that it takes an average institution 250 days to even know that it’s been hacked. What are India’s financial institutions doing to combat this threat?

Mr Mahapatra said: “Financial institutions realise that their business is now increasingly conducted outside of their span of control, with a proliferation of technology like mobility, cloud and the Internet of Things. Many have revamped their cybersecurity programme with direct oversight from the board to ensure the highest level of visibility.”
 
I was interested to hear that there are now centres of excellence for cyber, with strong industry and academic body participation. Some financial institutions are organising hackathons to tackle challenges and improve skill sets for building next-gen cybersecurity specialists.

“There are more awareness programmes being conducted for internal staff on the importance of cybersecurity and how they can participate”, continued Mr Mahapatra. “There is more spending on preventive care over reactive care, and more involvement with specialist vendors.”

This sounds like a comprehensive, collaborative approach. And Mr Kannan added that: “Since many of the services offered by banks are outsourced, there is also a need to make these outsourced service providers as robust as possible. Capacity building among staff is another area where banks are spending a lot of time to combat cyber threats.” 

The only way to appropriately address security concerns like hacking is by sharing knowledge with partners, vendors and fellow institutions. We need to work together on information sharing. This is the platform that Sibos provides, as was evident in last year’s Big Issue Debate on cybersecurity:

Registration is now open for Sibos 2017 Toronto. I hope that you can join us as we further explore these themes.